#Banks warn that APRA move on home loan risks will push up mortgage costs – ABC News (Australian Broadcasting Corporation)
By business reporter Michael Janda Updated Пн 20 июл 2015, 12:33 PM AEST
Australia’s four major banks, plus Macquarie, will face higher capital requirements from July 1, 2016.
ABC News, file photo
The banking regulator APRA is requiring the major banks to hold more capital in reserve to protect against potential mortgage losses.
In a media release this morning, the Australian Prudential Regulation Authority (APRA) announced that it would require an average mortgage risk weight of 25 per cent on residential mortgages, up from the current average of around 16 per cent.
The change applies only to the four major banks (ANZ, CBA, NAB and Westpac) and Macquarie Bank, which are the five institutions currently allowed to set their own mortgage risk weights.
All other lenders regulated by APRA use a standard 35 per cent risk weight on residential mortgages, meaning that the major banks will still retain a cost advantage over smaller rivals.
“The mortgage industry was a little bit biased towards the major players because they could hold less capital and, therefore, it brings the centre of gravity back a little further towards some of the smaller players,” the principal of Digital Finance Analytics, Martin North told The World Today.
Mortgage risk weights reflect the belief, based on previous experience, that residential mortgages are safer than other types of loan.
Therefore, banks need only hold enough capital to cover losses on a certain percentage of their total residential mortgage loan book, rather than 100 per cent of the loans.
The cost of holding higher capital will inevitably be borne by customers and shareholders. Peter King, Westpac CFO
Currently, the major banks have average risk weights in the mid-teens, and APRA said the 25 per cent floor is likely to see the major banks raise their overall capital by 80 basis points.
That would go some way towards the 200-basis-point increase in major bank capital levels that APRA wants to see to ensure that Australia’s banks are in the world’s top quarter for safety.
APRA’s research suggested that a 200-basis-point capital increase might equate to the banks raising an additional $30 billion, meaning that 80 basis points may require $12 billion in extra capital to be raised by the big four and Macquarie.
Major banks warn shareholders and customers will pay
The change will come into effect from July 1, 2016, giving the banks around a year to raise additional capital and get their affairs in order.
The major banks will be affected quite differently by APRA’s announcement.
Bank profits under threat
National Australia Bank said its recent surprise $5.5 billion capital raising was in part designed to provide a buffer for likely regulatory changes, and its key capital ratio is likely to be within its target range after the risk weight change.
ANZ said the changes are likely to require an additional $2.3 billion in capital to cover its mortgage portfolio, however it described the estimated 55-basis-point increase in its capital position as “manageable” given the year transition period.
Due to its larger reliance on home lending, the Commonwealth Bank said it is expecting a 95-basis-point increase will be needed in its key ‘common equity tier one’ capital ratio for residential mortgages.
“In expectation of APRA’s recent announcements, CBA has been working on a number of options for managing our capital over the coming year,” said its chief financial officer David Craig.
“We will provide more commentary on these announcements when we present our annual results on 12 August 2015.”
Westpac is the only bank so far to put a concrete number on the likely impact, saying it will probably have to raise an additional $3 billion in capital.
The bank’s chief financial officer Peter King has warned that shareholders and customers will bear some of the cost.
It may probably force them to raise rates or reduce discounts on mortgage rates. T.S. Lim, Bell Potter Securities
“We are well placed for this change having already taken a number of significant steps to boost our capital position, including partially underwriting the first half 2015 DRP [dividend reinvestment plan] and the recent sale of shares in BT Investment Management,” he said.
“While Westpac is well-placed to meet these changes, increased capital does come at a cost. The cost of holding higher capital will inevitably be borne by customers and shareholders.”
However, the chief executive of the Customer-Owned Banking Association (COBA) Mark Degotardi said his members are unaffected by the change and customers can switch to them if the major banks do pass on their increased costs to mortgage rates.
“If the major banks seek to increase home loan interest rates in response to APRA’s new, fairer capital settings, customer-owned banking institutions look forward to taking market share from the major banks,” he said.
Audio 3:33 Banking analyst Martin North explains APRA s mortgage changes
It is possible that, as with NAB, CBA and the other two major banks, as well as Macquarie, may need to ask shareholders to tip in more funds through capital raisings.
That would dilute earnings per share, and put downward pressure on dividends.
Banks have also been selling so-called ‘non-core’ assets to raise additional funds.
‘Not going to have a massive impact’
However, Bell Potter Securities analyst T.S. Lim said the increase is smaller than many had feared, and the banks have a year to transition.
“It is better than expected as they haven’t been slapped with a 30 per cent average risk weight as some thought,” he told Bloomberg.
The major banks hold less capital against their mortgages today than pre-GFC, and that needs to be corrected. Martin North, Digital Finance Analytics
Mr Lim said that the Commonwealth and Westpac would likely need to raise around $3 billion each in extra capital, and ANZ $2 billion.
He told Bloomberg that NAB’s capital raising was likely sufficient to cover the additional requirements, while Macquarie’s mortgage book was small enough that it would not be significantly affected.
However, it might make mortgages a little more expensive, as banks seek to cover the extra costs.
“It may probably force them to raise rates or reduce discounts on mortgage rates,” Mr Lim added.
Martin North agrees that there might be less home loan discounts on offer as the changes filter through, but said they are “not going to have a massive impact”, and simply move the banks back towards their previous position.
“At the moment, the major banks hold less capital against their mortgages today than pre-GFC, and that needs to be corrected,” he added.
The Federal Government’s Financial System Inquiry recommended a floor of 25-30 per cent on the so-called “internal ratings-based” approach to setting mortgage risk weights.
APRA said it may lift the 25 per cent floor further, depending on the outcome of negotiations within the Basel Committee on financial regulation, which is expected to unveil a new international framework later this year.
Posted Пн 20 июл 2015, 8:54 AM AEST
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